Topic 2: Computing Cash Flows
Choose one real company, find its financial statements, and compute TWO of the following items for the company using its financial statements. Please show your computations. If you can’t find depreciation value from the Income Statement, you can try the Cash Flow statement; it should be included in the operating activities in Cash Flow statement.
1. Operating Cash Flow (OCF)
2. Capital Spending
3. Change in Net Working Capital
4. Cash Flow from Assets (FCF)
5. Cash Flow to Creditors
6. Cash Flow to Stockholders
Also read instructions go in order also when answering your answer try to go in order !! Also I will be posting a example that instructor shared with the class try your answer same as teacher format !!
Instructor Example
(Example on Topic 2) Walmart’s OCF & FCF in 2023
I like to compute the Operating Cash Flow (OCF) and Free Cash Flow (FCF) for Walmart in 2023. I first collect the following information from its latest financial statements on yahoo finance (Financials). Note that figures are in millions.
EBIT or Operating Income: $20,428 (Income Statement)
Tax: $5,724 (Income Statement)
Depreciation Amortization: $10,945 (Cash Flow Statement)
Fixed Assets in 2023 = $167,542 (Balance Sheet)
Fixed Assets in 2022 = $163,790 (Balance Sheet)
Current Assets (CA) in 2023: $75,915 (Balance Sheet)
Current Liabilities (CL) in 2023: $92,458 (Balance Sheet)
Current Assets (CA) in 2022: $81,070 (Balance Sheet)
Current Liabilities (CL) in 2022: $87,379 (Balance Sheet)
Then, I can start computing the OCF and FCF as the following.
Operating Cash Flow (OCF) = EBIT + Depreciation – Tax = 20,428 + 10,945 – 5,724 = 25,649
Capital Spending = Ending Fixed Assets – Beginning Fixed Assets + Depreciation = 167,542 – 163,790 + 10,945 = 14,697
Change in Net Working Capital = Ending NWC – Beginning NWC = Ending (CA – CL) – Beginning (CA – CL) = (75,915 – 92,458) – (81,070 – 87,379) = -10,234
Cash Flow from Assets (FCF) = OCF – Capital Spending – Change in NWC = 25,649 – 14,697 – (-10,234) = 21,186
We can conclude that in 2023 Walmart generated the “free” cash amount of $21,186 million for its investors, including bondholders and shareholders.
To compute the Operating Cash Flow (OCF) and Free Cash Flow (FCF) for Apple Inc. in 2022, we will need to gather the following information from its financial statements.
Income Statement Data
Operating Income (EBIT): $100,869 million
Tax Expense: $14,541 million
Cash Flow Statement Data
Depreciation and Amortization: $11,510 million
Balance Sheet Data
Fixed Assets in 2022: $152,061 million (Ending Fixed Assets)
Fixed Assets in 2021: $133,365 million (Beginning Fixed Assets)
Current Assets (CA) in 2022: $122,195 million (Ending Current Assets)
Current Liabilities (CL) in 2022: $141,720 million (Ending Current Liabilities)
Current Assets (CA) in 2021: $143,713 million (Beginning Current Assets)
Current Liabilities (CL) in 2021: $105,392 million (Beginning Current Liabilities)
Now, let’s compute the OCF and FCF for Apple Inc. in 2022.
Operating Cash Flow (OCF)
OCF = EBIT + Depreciation – Tax OCF = $100,869 + $11,510 – $14,541 OCF = $97,838 million
Capital Spending
Capital Spending = Ending Fixed Assets – Beginning Fixed Assets + Depreciation Capital Spending = $152,061 – $133,365 + $11,510 Capital Spending = $30,206 million
Change in Net Working Capital (NWC)
Change in NWC = (Ending CA – Ending CL) – (Beginning CA – Beginning CL) Change in NWC = ($122,195 – $141,720) – ($143,713 – $105,392) Change in NWC = -$18,525 million
Cash Flow from Assets (FCF)
FCF = OCF – Capital Spending – Change in NWC FCF = $97,838 – $30,206 – (-$18,525) FCF = $146,569 million
In conclusion, for the fiscal year 2022, Apple Inc. generated an Operating Cash Flow of $97,838 million and a Free Cash Flow of $146,569 million. This indicates that Apple Inc. was able to generate significant free cash flow during the year, which can be utilized for various purposes such as investments, dividends, or debt repayment.
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